A Simplistic History of Capitalism

I recently found myself listening to someone criticising capitalism and thinking: But I like Capitalism, I think it’s a good system!

I thought, what’s the alternative? Communism with its planned economy clearly didn’t work well for people. Feudalism, with its hereditary titles and land-based ownership, was all about keeping the poor poor and more or less enslaved.

As a former entrepreneur, I thought of capitalism as this system where anyone with an idea could go out and find some capital, build something useful and hopefully earn themselves a prosperous life from their efforts and ingenuity. Something closer to a meritocracy. Of course, mine was a simplistic definition. Not wrong, but incomplete.

The criticism I was hearing was legitimate. And I certainly don’t like everything about today’s neoliberal economy. So I felt I needed to get a better sense of what capitalism is, or at least what I mean with capitalism. This post is a summary of what I’ve learned.

In its simplest form, capitalism is when three things come together:

• Means of productions are owned by individuals or businesses.
• People who work with these means of productions to produce goods and render services are paid a wage.
• The results of this work is exchanged for money in a market.

It turns out, capitalism has been around for a while. Predating capitalism, but also foreshadowing it, Jakob Fugger, a German believed to be the richest man (comparatively) to ever live, was born in the 15th century. He owned his looms, mines and foundries and paid his workers are salary, selling his goods on markets all over Europe, racking up a staggering 2% of Europe’s GDP at the time. Markets weren’t really free back then, so it wasn’t strictly speaking capitalism, but it certainly started to look like it.

In the 16th century, capitalism emerged in its first form, called merchant capitalism. It was all about trade, colonization and moving goods over long distances as a means to amassing wealth (oppressing various peoples in the process).

In the 19th century, industrial capitalism shifted the creation of wealth to factories and introduced mass production, making more goods affordable. At the same time, it leaned hard on child labour and 16-hour workdays with virtually no legal or physical protection for workers, and created a whole new form of poverty by disconnecting people from the land and forcing them to work for a wage to survive. Before that, if you had no job, you at least had shelter and some fruits, vegetables and chickens to eat. In the 19th century, without a job you had nothing at all. The poverty found in slums, overlooked by opulent mansions, was shocking.

After the second world war, things were so bad that societies agreed that some minimum guarantees were necessary. Welfare states ensured, after many hard-fought battles, that you didn’t need to starve and had access to basic medical services if you lost your job. Albeit hard-earned, there was some trickle-down effect. A middle-class emerged, and many people gained access to comfortable living. There was a market, yes, but many things were also provided for by the state, like education or infrastructure.

Then, in the 80s, the Reagans and Thatchers and Friedmans of the world decided that it was too much regulation and that free (as in totally deregulated) markets with no interference from the state were the universal solution to everything. Privatised railroads and hospitals proved to work very well quite poorly, but that didn’t matter. The market was going to fix it eventually, or so they hoped.

(Let’s keep in mind that this history applies only to the West, with glaring male/female inequalities and oppressed minorities remaining the norm even to this day. Not everything is rosy in capital-land.)

This was a simplified history of capitalism, but it helped me understand things better. Before neoliberalism, it seems to me that capitalism was merely one part of our societies, along with the welfare state and its institutions like schools, hospitals and infrastructure, but also culture, religion and regular social bonds were equally fundamental to society. In other words: Not everything was about money. Not everything was for sale. Other values still mattered. And while capitalism provided the necessary raise in productivity and made goods more affordable during the industrial revolution, it took some serious push-back (i.e. regulation) after WWII before the population in general started benefiting from the wealth capitalism enabled.